- The International Monetary Fund (IMF) Executive Board has authorised a Sh55.1 billion (US$447.39 million) loan to Kenya
- Kenya has received a total of around $US1.655 billion (Sh203.84 billion) in payments under the EFF/ECF accords
- IMF stated that Kenya’s economy is solid and expects it to expand by 5.3%
The International Monetary Fund (IMF) Executive Board has authorised a Sh55.1 billion (US$447.39 million) loan to Kenya for budgetary support.
This follows the fourth evaluation of the 38-month, $US2.34 billion (Sh288 billion) Extended Credit Facility (ECF) and Extended Fund Facility (EFF) agreements with Kenya.
Kenya has now received $US1.655 billion (Sh203.84 billion) in payments under the EFF/ECF accords.
The facility, approved in April 2021, was aimed at helping Kenya manage its debt risks, respond to the Covid-19 pandemic and other global shocks, improve governance, and implement more extensive economic reforms.
IMF confidence in Kenya’s economy
Despite a challenging global economy, the IMF stated that Kenya’s economy is solid and expects it to expand by 5.3% this year. However, it also cautioned that climate-related risks are rising in the longer term.
Despite exports growing by double digits due to increased global crude oil prices, the lender predicted that the current account imbalance would continue to grow.
The lender noted that the government’s attempts at fiscal reduction has caused the public debt to start to level off, but cautioned liabilities from the previous fiscal year and a rise in unbudgeted expenditure in the early 2022/23 fiscal year would strain the budget.
IMF pointed out that Kenya’s dedication to fiscal consolidation has been reaffirmed by the new administration headed by President William Ruto, which aims for a smaller total fiscal deficit than in the original budget.
Dr. Ruto said in his first address to Parliament in September that the Sh3.3 trillion budget for this year would be reduced by Sh300 billion to relieve strain on the exchequer.
The loan will aid in protecting Kenya’s foreign exchange reserves, which had dropped to only 3.98 months of import coverage—well below the required four months—before the loan was approved.
Kenya aims smaller total fiscal deficit
“The sustainability of Kenya’s debt is anchored by its dedication to its economic programme, which is backed by the Fund’s EFF and ECF arrangements. Even though there has been a slowdown in global growth, credit availability has tightened, commodity prices have been volatile, food poverty has increased due to the continuous drought, and climate-related concerns continue to be a problem, the economy has done well. To maintain favourable medium-term prospects, conservative macroeconomic policies and steadfast structural reform execution remain crucial,” said Antoinette Sayeh, the IMF’s Deputy Managing Director.
She praised the gradual removal of fuel subsidies by Dr. Ruto’s administration as well as plans for reprioritising expenditure to reduce the fiscal deficit and claimed that strong tax revenue performance had supported resilience and softened the early effects of global shocks on households and businesses.
“In the future, maintaining a long-term commitment to fiscal consolidation is essential to reducing debt vulnerabilities. Improved expenditure effectiveness, revenue administration, public finance and debt management, and additional tax policy measures grounded in a medium-term revenue strategy, will be crucial,” added Sayeh.
The lender also supported the Central Bank of Kenya’s (CBK) decision to increase the base lending rate for the second time to reduce inflation, stating that “further contraction might cap second-round impacts and maintain inflation pressures well-anchored while continuing to support external adjustment.”
The IMF also stated that enhancing the governance structure for state-owned enterprises and resolving risks at Kenya Airways (KQ) and Kenya Power are essential priorities.
“Progress on the institutional reform agenda should continue with new initiatives to support inclusive growth. Kenya fulfils a critical pledge to improve transparency and accountability by disclosing beneficial records for winning bidders of new procurements,” said Sayeh.